LLC (Limited Liability Company)
A flexible business entity with pass-through taxation, less common for venture-backed startups.
Definition
An LLC is a business structure that provides liability protection to its owners (called members) while offering tax flexibility, including pass-through taxation (profits are taxed only at the individual level, not the corporate level). LLCs are less common for venture-backed startups because they cannot issue stock options or preferred stock in the traditional way. Equity compensation at LLCs typically uses profit interests or phantom equity, which have different tax implications.
Why it matters
If your company is an LLC, your equity compensation is structured differently than at a C-Corp. You may receive profit interests instead of stock options, with different tax treatment and fewer well-established precedents. Consider consulting a tax advisor.
Example
A real estate tech startup is structured as an LLC. Instead of stock options, it grants employees profit interests that entitle them to a share of future profits. An employee with 1% profit interest in a company that sells for $50M above its baseline value would receive $500K.